Captive Bank Ownership

Broadly defined, Private International Banks, Offshore Banks or Captive Banks are simply banking entities established outside of the United States or the country in which the owner resides. These entities are only responsible for meeting the standards established by the jurisdiction which licensed and regulates the bank. They are not subject to state, federal or other regulations from other countries. The advantage of avoiding costly reserve and insurance requirements can result in a path of profits contributing directly to the bottom line. It is also important to stipulate that these entities are NOT tax shelters. With all that in mind, we offer the following definitions for both offshore banks in and outside of the United States. They do provide very distinct benefits to ownership. Please also keep in mind that the application process can be challenging and time consuming. We would be happy to guide you through the process and make suggestions as to which jurisdiction will best fit your goals.

There are two distinct types of international banks:

Class A Banks

A Class A bank is typically a storefront business operation, often accompanied by a marquee. It is a combination banking entity, accepting public deposits for both private and business accounts. In the United Sates, we are most familiar with the Class A bank. This type of banking license is held by all the “majors” and frequently has the customary vault, tellers and ATM machines. Examples of international Class A banks would include Credite Suisse, Barclays & Royal Bank of Canada.

Class B Banks

The second type of international bank is a “Class B” bank or a “Private International Bank.” This bank is usually restricted from doing business with the citizens of the host country and does not maintain a presence on “the street”. A representative, usually an attorney, will post a brass plate on their office building exterior and all business is conducted via fax, telephone and mail. Class B banks are able to issue virtually all of the same financial instruments as that of a Class A bank; however, they cannot provide services to citizens of the host country. All solicitations need to be carefully monitored. Advertisements are restricted to the appropriate international periodicals. Private International Banks tend to have higher profit margins and lower capital outlays.

Captive (Offshore) Banks in the U.S.

Are you aware that the U.S. licenses two banking entities that are virtually identical to the classic definition of an offshore bank? Edge Corporations and International Banking Facilities are shell banking units that present ownership with the benefits of being a bank with reduced regulation and lower reserve requirements. To those who would own an offshore banking entity, these facilities provide entrée into the U.S. and the prestige that comes with it.

Edge Act Corporation

A federally-chartered U.S. corporation that is only allowed to engage in international banking or other financial transactions related to international business. Authority established by the Edge Act in 1919. International Banking Act of 1978 allows foreign banks to own Edge Act corporations.

International Banking Facilities (IBFs)

Institutions in the United States that allow depository (banks) to offer services to foreign residents and institutions free of some Federal Reserve requirements and some state and local income taxes.

Conclusion

Banking – in all its various structures – is essentially the business of moving money for profit while servicing the world economy. We think this is an important perspective for business owners to keep in mind. Also, within this very competitive marketplace, governments feverishly compete for the critical influx of business capital. A knowledgeable entrepreneur can use this information to their competitive advantage.